With the Bank of England increasing the base rate of interest to 3% on the 3rd of November 2022, many people are asking questions about the property market moving forwards from 2022 into 2023. Will house prices remain the same? Will it become easier to get a mortgage? There is alot of uncertainty and here we will try and fathom what the interest rate rise means for you.
The hike means that some mortgages – especially those on tracker and variable rates – will spike once more and new deals will become less affordable to would-be movers. In a monumental meeting some nine members of the Monetary Policy Committee made the decision that will affect millions of homeowners across the UK.
It’s the Bank’s highest single interest rate rise since 1989 as it bids to control inflation.
It is also the eighth time in a row that the Bank has increased rates – less than a year ago the rate was just 0.1%.
What does this mean for your mortgage?
The unnerving uncertainty surrounding interest rate pricing on mortgages has been prevalent over the past couple of months.
This latest base rate rise may well stir further concerns on how this will flow through the market and impact the mortgage repayments of consumers who are already facing a cost of living crisis. Due to the unpredictable nature of the mortgage arena, it is imperative that both those looking to purchase a property or who wish to refinance seek independent advice from a broker to navigate the options available to them.
Amid interest rate rises, fixing for the longer-term may be an attractive choice for those who want peace of mind with their mortgage repayments.
However, whether now is the time to take out a new deal really will depend on someone’s circumstances, particularly for first-time buyers who may be struggling to build a deposit and who have limited disposable income.
That said, because of record-high house prices, those remortgaging may find they have more equity in their home to drop down into a lower loan-to-value bracket, where more competitive interest rates could be found.
It is unknown whether borrowers would be better off coming out of their fixed mortgage deal early to refinance right now or wait and fall onto their revert rate, because everyone’s circumstances are different.
However, sitting on a variable rate does not guarantee peace of mind in the months to come. Depending on how long someone has left on their fixed deal, they may be prepared to accept an early repayment charge to potentially save on their monthly repayments overall with a new deal amid rising interest rates.
The average standard variable rate (SVR) has steadily been rising and a further rise of 0.75% on the current SVR of 5.86% would add approximately £2,223 onto total repayments over two years.
This calculation is based on a £200,000 mortgage over a 25-year term on a repayment basis. For a more individual assessment use our online mortgage calculator.
What do the experts say about mortgages and the housing market?
Jeremy Leaf, a former RICS residential chairman: “What’s more important for housing market prospects than interest rate movements is the confidence to take on extra debt.
“If home buyers who need a mortgage believe payments are going to rise rapidly, they will sit on their hands. However, just under a third of households have a mortgage and about 75 per cent of these are on fixed-rate deals so the impact will be less immediate.
“However, if this larger movement is regarded as the highest or close to the highest rates are likely to reach then it will begin to bring some much-needed stability.
“At the sharp end, we know the appetite to move remains and not only from those who have to due to debt, death, divorce and downsizing – it’s just a question of when.”
Rightmove’s property expert Tim Bannister: “The era of historically low interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.
“However, compared to the volatility of a few weeks ago, mortgage rates have now started to stabilise and fall. As today’s rise was expected, we don’t think we’ll see any significant changes to new fixed rate deals based solely on today’s interest rate rise.
“Mortgage payments will be much more manageable for those first-time buyers who have been lucky enough to save up a bigger deposit of 25%, as they may find that monthly mortgage payments on a typical first-time buyer home are lower than their current monthly rental payments.
“It’s important to look beyond the headline numbers, because, while “like-for-like” mortgage costs have been increasing, mortgage brokers and lenders will be able to help people assess the different options available to manage their costs and see if they can afford to move.”
Richard Donnell, Executive Director of Research at Zoopla: “Money markets were expecting a hefty jump in the base rate today. Most borrowers use fixed-rate loans so it’s the cost of 2 and 5-year fixed-rate money for banks that underpins mortgage rates more than the base rate.
“Today’s jump does not worsen the outlook for mortgage borrowers but home buyers need to realise that 4-5% mortgages are set to be the norm in future, not the 1-2% of recent years.”
How will the local property market be affected ?
Over the past 12-18 months, the availbility of properties for sale across the telford area has been around the 300 mark. Over the past few months and since the catostophic ‘Truss’ Government, the amount of available local stock in Telford has risen to around 700 properties. Whilst properties do continue to sell, its worth noting that the increase in available stock is down to sales falling through, people looking to move from larger properties due to the cost of living, and some stock sitting stagnant on the market.
The uncertainty in the market place and rising mortgage rates are making it more difficult for people to get onto the housing ladder or move from their current properties. We predict the increase in stock levels to continue into 2023. Once the dust does settle, everyone will need to get used to higher mortgage rates and first time buyers in particular will need to save to benefit from better mortgage rates. The higher levels of available stock and lower transaction numbers could lead to price reductions on available stock to meet the affordability of buyers levelling the playing field again.
Whilst for some vendors looking to sell, this will be unstomackable, we must remember that we have seen property prices increase of 20% plus from 2020 until 2022 as the pandemic articifially inflated prices. Predictions for property price deflation are currently at around 5% to 10% over the next 12-18 months which will see property prices still above pre-pandemic levels.
Our advice would be that if you need to move, then you should proceed with putting your property on the market. If you sell, you will also be able to take advantage of the changes in the market on your next purchase. For those who are unsure about moving, its worth speaking to our in house mortgage advisor for a free mortgage consulation to take a look at your options and call us for a free valuation to see how much your current property is worth.
To arrange a valuation or a mortgage appointment, please call us on 01952 701019 today or email telford@goodchilds-uk.com.
